Aug 27, 2007

Flat Panel TVs: Costco CEO Admits Retail Model Flawed

For those wondering how one of the hottest consumer electronic categories - Flat Panel TVs - could become so unattractive so fast for both manufacturers and retailers alike, Costco's CEO Jim Sinegal has provided some important answers.

In a startling admission about the reality of consumer electronics retailing, Mr. Sinegal explained in today's Wall Street Journal ("Turning Shopping Trips Into Treasure Hunts") why Costco has revoked its popular policy of offering unlimited returns of big electronics including flat screen TVs. (They replaced the policy with a more restrictive 90-day time limit on returns).

"...most of the reason for the TVs coming back were that customers couldn't
understand what to do with them. We said, we're going to help you get this thing
hooked up. We're going to give you two years of warranty. We're going to make
sure, even if we have to send somebody out to your house, that it works. We
think we came up with a great solution"
In years to come, comments like this will be looked back upon as early indicators of a sea change in U.S. retailing. "Customers couldn't understand what to do with them" points to the devil's bargain that low price-only retailing creates when it crowds out more consumer-friendly formats. Without the liberal return policy, Costco's consumers will be stuck with products that fail to meet unwary buyers' basic product usage needs.

The situation is especially dire for customer-focused branded product manufacturers who know that "word of mouth" effects often mean the difference between wild success or dismal failure. These branded manufacturers know that exciting new product development ideas also need equally exciting and pro-consumer experiences at retail in order to drive successful purchase AND usage experiences.

But improving the state of U.S. retailing experiences will take big investments. Investments that are hard to justify in a marketplace dominated by price-only discounters who inevitably free-ride any retail improvements and drive out innovation in non-price customer experience.
PS: Wal-Mart and Dell might want to take careful notice of other comments Mr. Sinegal makes in the same article: "One year, we bought an IBM computer that we were going to sell for, I think, $1,000. We bought thousands of them, and it bombed. We had to lower the price. Several times. Yeah, we're not infallible..."

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